Enhancing banking performance through dynamic digital transformation capabilities and governance, risk management, and compliance: Insights from the Indonesian context

Abstract

Digital transformation (DT) is a crucial strategic initiative for organizations to rectify output, adapt, and keep up with the digital economy. Dynamic capability (DC) is a widely‐used model for managing opportunities and risks from digital transformation. However, there is a lack of research examining the measurement and relationship between the primary activities of dynamic capability and DT, especially within the banking sector. Acknowledging the importance of DC, we propose this research which emphasizes the significance of sensing, seizing, and transforming aptitudes in promoting DT and improving banking performance. Within this study, we specifically investigate the role of governance, risk management, and compliance (GRC) factors. By utilizing structured equation modeling (SEM) and analyzing data from 322 respondents representing 45 banks in Indonesia, our empirical findings demonstrate that all three DC activities have a significant influence on DT, in which sensing activity has the biggest impact, followed by transforming and seizing. Furthermore, we reveal that DT acts as an intermediary between DC activities and banking performance, and GRC factors further enhance the impact of DT on organizational performance. Our research offers valuable insights to assist banks in prioritizing essential capabilities, including GRC, to enhance overall performance through dynamic digital transformation capabilities.

A Human Resources Management Perspective on the Complementary Relationship between the Success of the GRC Model, Employee Perception, and the Impact of This Relationship on Performance

“…Therefore, the significance of the model becomes evident, as it is crucial not only for attaining the objectives of the vision and its programmes but also for accomplishing the objectives of other organisations in a broader sense. The governance, risk, and compliance model, sometimes referred to as GRC, does not entail the establishment of a major department solely dedicated to its functions, nor does it need the elimination of decentralised approaches within the organisation (Abdurrahman, Gustomo & Prasetio, 2023) . This pertains to the establishment of a methodology that guarantees the provision of accurate and suitable information to pertinent individuals within organisations at the appropriate junctures while effectively establishing objectives and implementing the necessary protocols, policies, and controls to address instances of uncertainty and uphold principled conduct with consistent performance (OCEG, 2021).…”

“…In light of the foregoing, it is clear that the significance of the present study lies in identifying the nature of the complementary relationship between the dimensions of the model (governance, risk, and compliance ) and the reflection of this relationship on the performance of individuals; as well as developing a theoretically developed framework for the GRC model and study variables within an integrated framework that supports their performance ( . )5 et al, 201 Mayer Despite the importance of GRC model, many of institutions are unaware of the benefits of integrating these three pillars, or the so-called three lines of defense, into a single system known as the GRC, or they do not place a high priority on understanding the method of communication between these three departments in an integrated and consistent manner (Abdurrahman, Gustomo & Prasetio, 2023). It disregards or disregards the fact that it represents the spinal cord of enterprise management, as it -according to (OCEG, 2021) -pertains to developing a methodology that ensures that the concerned parties obtain the right information at the right times, set the right goals, and apply the correct procedures and controls .…”

“…Consistency: It provides coordination between the administration's available resources, allowing the administration to compare and choose among its resources based on the issues and problems it confronts and its priorities at the appropriate time Abdurrahman, Gustomo & Prasetio, 2023) .…”

“…Table (1) the relationship between the model and the triangle relationship between the governance, risk, and compliance model Source: Compiled by the authors In their study, Faggio et al (2019) and Andrénache et al (2018) clarified the relationship between governance, risk, and compliance by comparing compliance management and risk management to the two levers of governance effectiveness in order to ensure responsibility, accountability, and optimal resource utilisation. The relationship between the model and the three elements was therefore explained as follows (Govindji, Peko & Sundaram ,2018;Abdurrahman, Gustomo & Prasetio, 2023):…”